DBRS Morningstar Updates Ratings on Certain Notes and Tranche Amounts of Manitoulin USD Ltd., Muskoka 2019-1

DBRS, Inc. (DBRS Morningstar) confirmed the AAA (sf) provisional rating on the Tranche A Amount issued by Manitoulin USD Ltd., Muskoka 2019-1 (Manitoulin). DBRS Morningstar upgraded the provisional ratings on the Tranche B Amount to A (high) (sf) from A (low) (sf) and the Tranche C Amount to BBB (high) (sf) from BB (high) (sf) (collectively, with Tranche A Amount, the Tranche Amounts) of two unexecuted, unfunded financial guarantees (the Financial Guarantees) with respect to a portfolio of primarily U.S. and Canadian senior secured or senior unsecured loans originated or managed by Bank of Montreal (BMO; rated AA with a Stable trend by DBRS Morningstar).

The provisional ratings on the Tranche Amounts address the likelihood of a reduction to the respective Tranche Amounts caused by a Tranche Loss Balance on each respective tranche, resulting from defaults and losses within the guaranteed portfolio during the period from the Effective Date until the Scheduled Termination Date (as defined in the Financial Guarantees).

DBRS Morningstar expects the ratings to remain provisional until the underlying agreements are executed. BMO may have no intention of executing the Financial Guarantees. DBRS Morningstar will maintain and monitor the provisional ratings throughout the life of the transaction or while it continues to receive performance information.

DBRS Morningstar has also upgraded its ratings on the Muskoka Series 2019-1 Class B Guarantee Linked Notes (the Class B Notes) to A (high) (sf) from A (low) (sf), the Muskoka Series 2019-1 Class C Guarantee Linked Notes (the Class C Notes) to BBB (high) (sf) from BB (high) (sf), and the Muskoka Series 2019-1 Class D Guarantee Linked Notes to BB (high) (sf) from B (high) (sf) (the Class D Notes, together with the Class B Notes and Class C Notes, the Notes). Manitoulin issued the Notes referencing the executed Junior Loan Portfolio Financial Guarantee (the Junior Financial Guarantee) dated as of January 30, 2019, between Manitoulin as the Guarantor and BMO as the Beneficiary with respect to a portfolio of primarily U.S. and Canadian senior secured and senior unsecured loans.

The ratings on the Notes address the timely payment of interest and ultimate payment of principal on or before the Scheduled Termination Date (as defined in the Junior Financial Guarantee). The payment of the interest due to the Notes is subject to the Beneficiary’s ability to pay the Guarantee Fee Amount (as defined in the Junior Financial Guarantee).

To assess portfolio credit quality, DBRS Morningstar may provide a credit estimate, internal assessment, or ratings mapping of the Beneficiary’s internal ratings model for each corporate obligor in the portfolio. Credit estimates, internal assessments, and ratings mappings are not ratings; rather, they represent an abbreviated analysis, including model-driven or statistical components of default probability for each obligor that DBRS Morningstar uses in assigning a rating to a facility sufficient to assess portfolio credit quality.

On the Effective Date (as defined in the Financial Guarantees referenced above), the Issuer will use the proceeds from the issuance of the Notes to make a deposit into the Cash Deposit Accounts with the Cash Deposit Bank. DBRS Morningstar may review the ratings on the Notes in the event of a downgrade of the Cash Deposit Bank below certain thresholds, as defined in the transaction documents.

For more information regarding DBRS Morningstar’s additional adjustment for select industries related to the Coronavirus Disease (COVID-19), please see its May 18, 2020, commentary, “CLO Risk Exposure to the Coronavirus Disease (COVID-19)” at https://www.dbrsmorningstar.com/research/361112.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are Rating CLOs and CDOs of Large Corporate Credit (January 26, 2022) and Mapping Financial Institution Internal Ratings to DBRS Morningstar Ratings for Global Structured Credit Transactions (March 1, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:

Each of the principal asset class methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision, Specifically, for the recovery rate, DBRS Morningstar applied the senior secured and senior unsecured recovery rates defined in its “Rating CLOs and CDOs of Large Corporate Credit” (January 26, 2022) methodology. DBRS Morningstar applies different recovery rates depending on the recovery tier and seniority.

DBRS Morningstar used its CLO Asset Model to determine expected default rates for the portfolio at each rating level. To determine the credit risk of each underlying reference obligation, DBRS Morningstar relied on either public ratings or a ratings mapping to DBRS Morningstar ratings of BMO’s internal ratings models. The mapping was completed in accordance with DBRS Morningstar’s “Mapping Financial Institution Internal Ratings to DBRS Morningstar Ratings for Global Structured Credit Transactions” (March 1, 2021) methodology.

The last rating action on this transaction took place on February 10, 2021.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst: Quan Yoon, Vice President, U.S. Structured Credit
Rating Committee Chair: Jerry van Koolbergen, Managing Director, U.S. Structured Credit
Initial Rating Date: January 24, 2019

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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-- Operational Risk Assessment for Collateralized Loan Obligation (CLO) and Collateralized Debt Obligation (CDO) Managers of Large Corporate Credits (September 20, 2021),
https://www.dbrsmorningstar.com/research/384628/operational-risk-assessment-for-collateralized-loan-obligation-clo-and-collateralized-debt-obligation-cdo-managers-of-large-corporate-credits

-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 10, 2021),
https://www.dbrsmorningstar.com/research/379958/interest-rate-stresses-for-us-structured-finance-transactions

-- Legal Criteria for U.S. Structured Finance (December 15, 2021),
https://www.dbrsmorningstar.com/research/389789

-- Rating CLOs and CDOs of Large Corporate Credit and CLO Asset Model Version 2.2.3.1 (January 26, 2022),
https://www.dbrsmorningstar.com/research/391226

-- Cash Flow Assumptions for Corporate Credit Securitizations (January 26, 2022),
https://www.dbrsmorningstar.com/research/391225

-- Mapping Financial Institution Internal Ratings to DBRS Morningstar Ratings for Global Structured Credit Transactions (March 1, 2021),
https://www.dbrsmorningstar.com/research/374333